Today Christopher Woolard, Executive Director of Strategy and Competition at the Financial Conduct Authority (FCA) gave a speech that outlined the areas where the UK may regulate crypto assets. He was talking at the Regulation of Cryptocurrencies event in London. His speech follows the publication two weeks ago of a report by the Cryptoassets Taskforce, a joint investigation by the FCA, Bank of England, and HM Treasury.
Although the report covered both crypto assets and distributed ledger technology (DLT), the speech only touched on crypto assets.
Woolard pointed out that the Taskforce could see a role for crypto assets, particularly in financial innovation such as international remittances. However, the Taskforce identified three significant potential harms. The first is the risk of loss to consumers. Secondly is the potential damage to market integrity. Here the Taskforce agrees with the Financial Stability Board that there is no current stability risk, but it’s important to remain vigilant. Thirdly is the risk of financial crime.
The FCA plans to clarify the boundaries of existing regulations in relation to crypto assets by the end of the year. After that HM Treasury will also consider the same issues, presumably to clarify the position for tax purposes. The report highlighted that future business models and use cases were not predicted or considered when the “perimeter” for regulation was defined and hence this needs to be revisited.
Because of concern about the risks for retail investors, the FCA will consult about prohibiting the sale of derivatives to consumers where the derivatives relate to certain types of crypto assets. This includes contracts-for-difference, options, futures and transferable securities.
The Treasury plans to consult and then legislate on anti-money laundering relating to, and this will go further than the fifth EU Anti-Money Laundering Directive.
The Taskforce concluded that cryptocurrencies present new challenges to traditional forms of regulation. Hence the Treasury is analyzing whether or not regulation could address the risks.
There are also plans to collaborate with international regulators.